Stephen Harper’s Conservatives are officially recanting their 2 1/2-year-old decision to buy the cutting-edge F-35 fighter plane – but the federal government is still resisting calls to hold an open competition to pick Canada’s next jet purchase.

The Harper government on Wednesday officially announced it was backing off a sole-source plan to buy 65 F-35 Lightning jets as a replacement for Canada’s aging CF-18 Hornets. It was a rare U-turn for an administration that only infrequently acknowledges it was wrong – but one the Tories felt was necessary to repair their fiscal stewardship credentials.

A pilot climbs into a French Dassault Rafale fighter jet at the Swiss Army Airbase in Emmen, central Switzerland October 28, 2008.
REUTERS

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“No decision has been taken on a replacement for the CF-18,” a senior government official told reporters in a not-for-attribution media briefing set up by the Tories so that top civil servants on the file could speak plainly about Ottawa’s new jet purchase policy.

The Conservatives have been dogged for months by a damning auditor general’s report last spring that said they selected the F-35 without due regard for price and availability. Back in July, 2010, the Tories announced to great fanfare they would forgo an open competition and would buy the Lockheed warplane because it was the only plane that would serve Canada’s needs. They defended the decision in the 2011 election and often excoriated critics who suggested they had made a mistake.

On Wednesday, Ottawa made a great show of backing away from that decision – while unveiling a full lifetime cost estimate for the Lockheed Martin plane that is five times greater than what the Tories originally advertised it would cost.

The “cradle-to-grave” bill to taxpayers for buying and operating the controversial F-35 warplane will exceed $600-million per jet – or $45-billion in total, the government announced Wednesday. The Tories originally sold the aircraft as a $9-billion purchase.

The $45-billion lifetime estimate may ultimately prove to be too low if the cash-strapped U.S. government cuts its own order for the F-35 – a move that would increase the average price.

Defence Minister Peter MacKay and Public Works Minister Rona Ambrose went to great effort Wednesday to distance themselves from the July, 2010, purchase announcement, an event where Mr. MacKay posed for photos in a dummy version of the fighter. “We are pressing reset on this acquisition in order to ensure a balance between military needs and taxpayer interests,” Mr. MacKay told reporters. “Let me be clear: The government of Canada will not proceed with a decision to replace the CF-18 fighter aircraft until all steps … are completed.”

Ottawa formally announced Wednesday it’s now shopping around to see if alternatives to the F-35 better meet its needs as a replacement for the aging CF-18 Hornets. The government has acknowledged, however, that it could again decide the F-35 is best for the job. “We’re undertaking a full-options analysis and the F-35 is obviously one of those options,” Ms. Ambrose told reporters.

Still, the government is holding off calling for open bids to build the plane – as opposition parties are demanding – saying they’ll wait for an options analysis led by the Royal Canadian Air Force first.

The new $45-billion F-35 price tag is based on the most expansive definition of costs over a 30-year lifetime for each jet, including fuel as well as upgrades and maintenance. The bill includes 65 planes and as many as 11 spares – a cost that works out to more than $600-million per plane.

The new forecast, which was scrutinized by consulting firm KPMG, looks at costs incurred over a 42-year-period. Less than 20 per cent of the costs are for buying the initial 65 planes. The other 80 per cent are for keeping this fleet operating.

The Canadian government is still assuming the United States will buy a large order of the jets. In one of the documents Ottawa released Wednesday, it said it’s expecting the U.S. and partners will purchase 3,100 jets – a number that’s expected to fall as Washington, heavily in debt, trims its order.

The government said the overall price tag for Canada will rise by $500-million for every reduction of 400 aircraft that are cut from international orders. That’s because there would be fewer economies of scale to be derived from mass production.

Separately, the Harper government trimmed its estimates for the maximum industrial benefits Canadian companies might win for supplying the F-35 production. This country’s firms are only able to compete for work related to the warplane because Canada joined a consortium of countries planning on buying the jets.

The government said now it believes the maximum potential industrial benefits from F-35 supply work would be $9.8-billion – instead of the $12-billion Ottawa previously touted. So far Canadian companies have secured $438-million in work.

Also, the Harper government has redrawn the list of independent monitors who will oversee the hunt for alternatives to the F-35 Lightning fighter after retired general Charles Bouchard bowed out. He is replaced by former senior civil servant James Mitchell of consulting group Sussex Circle. The others remain the same, including ex-Communications Security Establishment chief Keith Coulter, a former fighter pilot; former federal comptroller-general Rod Monette, who also served as a senior bureaucrat in National Defence; and University of Ottawa professor Philippe Lagassé, an outspoken critic of the jet procurement.

The Harper government is going shopping for alternatives to the controversial F-35 in the most significant demonstration yet that it is prepared to walk away from its first choice for a new warplane.

To demonstrate that they are restarting the procurement process from scratch, Canadian officials will collect information from other plane manufacturers, including U.S.-based Boeing, maker of the Super-Hornet, and the consortium behind the Eurofighter Typhoon. They may also contact Sweden’s Saab, manufacturer of the Gripen, and France’s Dassault, maker of the Rafale.

The ballooning lifetime cost of the F-35 fighter and Ottawa’s decision to shop around for alternatives are creating panic among Canadian companies betting on supply contracts for the Lockheed Martin plane, sources have said.

The government aims to complete this reappraisal of what the fighter aircraft market can offer Canada as expeditiously as possible in 2013.

Government officials said Wednesday that Ottawa has not decided whether to call for competitive bids to supply a plane and will await the results of the options analysis.

Canada has signed no contract to buy F-35s, and while it has signalled to Lockheed Martin, the manufacturer, that it wants 65, it has no obligation to buy them.

It did sign a memorandum of understanding in 2006 that set the terms by which a country would buy the aircraft and also enabled domestic companies to compete for supply contracts for the plane.